Uranium glows again

Uranium stocks have had their best day since the Japanese nuclear crisis in March.

By InvestSMART · 16 Nov 2011

By InvestSMART ·
16 Nov 2011

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Uranium stocks have had their best day since the Japanese nuclear crisis in March.

URANIUM stocks have had their best day since the Japanese nuclear crisis in March, with Prime Minister Julia Gillard's support for sales to India adding to positive developments for the sector in overseas markets.

Share price rises of more than 10 per cent were common across the Australian uranium sector, with the value of smaller stocks such as Deep Yellow and Peninsula Energy increasing more than 20 per cent in one day.

Ms Gillard's pledge to lobby Labor colleagues to overturn the ban on sales to India follows strong competitive tension for takeovers in the uranium sector and last Friday's 7 per cent rise in the global price.

Paladin Energy boss John Borshoff said selling to India would be a ''much needed move'' given many other nations were already doing so. Paladin shares rose 5? to $1.66, meaning the stock has risen close to 18 per cent over the past week.

Toro Energy shares rose by more than 10 per cent to 8.5?, and chief executive Greg Hall said the biggest impact of such a change would be to encourage Indian investment in Australian uranium stocks.

BHP Billiton could benefit significantly if sales to India are legalised, given the company's plans to develop the world's biggest uranium mine at Olympic Dam in South Australia. BHP said it may review its ban on selling uranium to India if the Australian government were to change its policy and safeguards were in place.

UBS analyst Tom Price said just 2 per cent of the uranium sold globally was bought by India, but the nation's demand was expected to grow at 5 per cent each year between now and 2020.

The increasingly competitive scramble for control of Canadian company Hathor Exploration was also boosting confidence in the sector yesterday. Hathor has a massive uranium prospect in Canada and is the focus of a takeover bidding war between Rio Tinto and Cameco.

Cameco topped Rio's most recent bid on Monday, in a move that values Hathor almost 70 per cent higher than the stock was fetching in August.

There are expectations Rio may respond by improving its offer for Hathor, and industry pundits say that bidding war, coupled with similar competitive tension for control of Perth miner Extract Resources, shows the big companies have a positive long-term view of uranium.

Despite the burst of optimism for the sector, all the uranium pure-plays mentioned above are still worth dramatically less than they were before the Fukushima nuclear disaster.

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Frequently Asked Questions about this Article…

Why did uranium stocks surge the day covered in the article?

Uranium stocks had their best day since the Japanese nuclear crisis in March after a mix of positive factors: Australian prime minister Julia Gillard pledged to lobby to overturn the ban on uranium sales to India, global uranium prices jumped (about a 7% rise noted), and takeover activity in the sector boosted investor confidence.

Which Australian uranium companies saw the biggest share price gains?

Smaller Australian names saw the biggest jumps: the article says Deep Yellow and Peninsula Energy increased by more than 20% in one day. Other movers included Paladin Energy (shares rose to about $1.66 and were up close to 18% over the past week) and Toro Energy (shares rose by more than 10%).

How could legalising uranium sales to India affect Australian uranium stocks?

Legalising sales to India could encourage Indian investment into Australian uranium companies, make Australian output more sellable, and potentially benefit large projects like BHP Billiton’s planned Olympic Dam development. Industry leaders in the article said such a policy change would be a significant and supportive shift for the sector.

What did industry leaders and analysts say about selling uranium to India?

Paladin Energy’s boss John Borshoff called sales to India a “much needed move,” and Toro Energy’s CEO Greg Hall said it would encourage Indian investment in Australian uranium stocks. UBS analyst Tom Price noted India currently buys only about 2% of uranium sold globally but its demand was expected to grow at roughly 5% a year to 2020.

What takeover activity is supporting confidence in the uranium sector?

A competitive takeover battle for Canadian miner Hathor Exploration—between Rio Tinto and Cameco—was highlighted. Cameco topped Rio’s most recent bid, valuing Hathor around 70% higher than in August. The article also mentions competitive tension over Perth miner Extract Resources, suggesting major companies see long-term upside in uranium.

Could big miners like BHP Billiton benefit from a policy change on sales to India?

Yes. The article notes BHP Billiton could benefit significantly if sales to India were legalised because of its plans to develop the world’s biggest uranium mine at Olympic Dam. BHP said it may review its own ban on selling uranium to India if the Australian government changed its policy and appropriate safeguards were in place.

Is the uranium sector back to pre-Fukushima levels yet?

No. Despite the recent burst of optimism and strong one-day gains, the article states that the uranium pure-plays mentioned are still worth dramatically less than they were before the Fukushima nuclear disaster.

What short-term market signals should everyday investors note from the article?

The article highlights a mix of market signals: sharp one-day share gains across smaller uranium stocks, a recent 7% rise in global uranium prices, growing takeover interest from major miners, and potential policy changes on sales to India. While these are positive signs, investors should remember the sector remains below pre-Fukushima valuations and that policy and takeover dynamics can change quickly.